Pennsylvania sees third rating downgrade in 2 years

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HARRISBURG — New York-based credit ratings agency Moody’s Investors Service is slapping a lower rating on Pennsylvania’s debt for the second time in two years, as state government grapples annually with built-in budget deficits.

Today’s downgrade of $11.1 billion general obligation bonds from Aa2 to Aa3 means Pennsylvania is ranked among the six worst states in Moody’s ratings for the 47 states with general obligation debt.

Moody’s cited Pennsylvania’s growing structural deficit and weak reserves. It also says the state’s modest economic growth is unlikely to keep up with its growing pension liabilities.

Fitch Ratings downgraded Pennsylvania last year, and Standard & Poor’s has warned it could downgrade Pennsylvania if it didn’t see significant strides to address deficits and pension liabilities.

Following news of the downgrade, both Gov. Tom Corbett and his Democratic challenger Tom Wolf seized on the issue.

Mr. Corbett, who has been barnstorming the state advocating public pension reform, released a statement saying Pennsylvania "benefits from a strong economy and low unemployment." He said that the underfunded pension "will continue to be a major cost driver on the commonwealth."

The report from Moody's did cite underfunded pensions, but also noted one-time fixes in the most recent budget, along with below average economic growth.

The Wolf campaign hit Mr. Corbett for the downgrade.

"Instead of showing leadership over the past three and a half years, Tom Corbett has passed budgets filled with gimmicks and misplaced priorities that have put Pennsylvania's future in an untenable position," said a statement from the Wolf campaign.

Post-Gazette reporter Matt Nussbaum contributed to this report. First Published July 21, 2014 12:00 AM